Wynn Resorts to rise on increase in Macau gaming revenue

Casino operator Wynn Resorts (NASDAQ: WYNN) reported a swing to a loss in the fiscal 2016 third quarter, compared to net profit in the similar period last year. More importantly, the company fell short of market expectations of revenues from the recently opened Wynn Palace. This gave an opportunity for punters to hammer the stock to a low of $86.73 last Thursday. Even though the company missed the earnings estimate of analysts, still, we believe that the stock would bounce back in the current quarter for a variety of reasons mentioned below.

The Las Vegas-based company reported third-quarter revenues of $1.11 billion, compared to $996.29 million in the third-quarter of 2015. The Q3 2016 revenues, however, were below the Wall Street estimates of $1.13 billion.

For the third-quarter, Wynn resorts recorded a net loss of $17.44 million or $0.17 per share, compared to net profit of $96.21 million of $0.95 per share in the similar period of 2015.

Bloomberg

Excluding charges such as pre-opening costs, property charges, and income tax impact on adjustments, among others, the Q3 2016 non-GAAP net income declined to $76.18 million or $0.75 per share, from $87.57 million or $0.86 per share in the prior year’s corresponding quarter. The Zacks analysts anticipated earnings of $0.78 per share for the third-quarter.

During the third-quarter of 2016, the adjusted property EBITDA grew 9.1% to $305.4 million, from $279.9 million in the similar quarter of 2015.

During the six weeks in operation, the Wynn Palace generated revenue of $164.6 million, which is marginally lower than $169 million forecasted by the analysts. The company’s President Matt Maddox acknowledged that it is taking a bit longer than expected for the revenue to increase.

Steve Wynn, the CEO of Wynn Resorts, stated that the barricades laid around the Wynn Palace, for the city’s infrastructure projects, have severely restricted the flow of visitors. Furthermore, it is too early to judge a casino resort based on six weeks of operational performance. Thus, having a bearish view on the stock based on the revenue data of Wynn Palace is not justifiable. A clear picture will emerge only at the end of this quarter. It should be noted that the company has declared a quarterly cash dividend of $0.50 per share payable on November 29.

The Macau gaming revenue recorded a 7.4% increase to 18.4 billion patacas ($2.3 billion) in September. After 26-month of decline, the gaming revenue reported a 1.1% growth in August. The arrival of the holiday season is expected to aid an increase in the revenue of all casinos and Wynn Resorts in particular. Thus, fundamentally, considering the overbeaten scenario, it is better to remain long in the stock.

After falling by nearly 14%, the stock has found support at 86. The stochastic oscillator is in the oversold region, thereby indicating a high probability of a bounce back in the price.

So, it would be prudent on the part of a binary trader to invest in a call option at this point in time. The target price for the call option should be preferably less than $93. As far as the choice of expiry date is concerned, the trader should select a date in the second week of December.

---